US builders Pulte Homes, Centex merge amid housing slump
09 Apr 2009
Giant home builder Pulte Homes Inc reached an agreement on Wednesday to buy rival Centex Corp for $1.3 billion in an all-share deal which market observers see as a prelude to more mergers in an industry decimated by the housing slump and the overall economic slump.
The transaction would make Pulte the biggest home builder in the US with a presence in more than half the states in the US, including Dallas-based Centex's sizable land holdings in Texas and the Carolinas. The combination would pair Pulte's strength in creating housing for affluent retirees with Centex's niche of young first-time buyers.
Pulte, which is headquartered in Michigan, and Centex both have a substantial presence in California. Both have ongoing housing projects in the state. The resultant gains in efficiency should generate annual savings of about $350 million, Pulte officials said. Those gains would come mainly from cuts in overhead and debt. The larger company would also be able to command better prices for materials, labour and other development costs.
Pulte's acquisition of Centex is expected to be completed in the third quarter of the year. The combined company would keep the Pulte name and Michigan headquarters. It would have cash reserves totalling $3.4 billion, and pay off $1 billion in debt by the end of the year.
Shareholders would receive 0.975 of a share of Pulte common stock for each share of Centex that they own. The transaction is valued at $10.50 per Centex share based on Pulte's Tuesday closing stock price of $10.77, amounting to a 38 per cent premium over Centex's closing price of $7.62 on Tuesday.
Executives at both Pulte and Centex said the deal would position them for what they say is the beginning of a recovery in the housing market.
